Floor Plan Financing Interest Tax Reform

The tax cuts and jobs act act made significant changes to the internal revenue code.

Floor plan financing interest tax reform. Floor plan financing interest expense. The senate s version of the tcja proposed limiting the deduction for floor plan financing interest to the same 30 percent amount that other types of interest are subject but this change was not adopted in the final bill. Under the new act assets placed in service after september 27 2017 are now eligible for 100 bonus depreciation i e the entire cost of the assets can be deducted in the year it is placed in service. Home federal tax tax reform.

30 percent of adjusted taxable income and c floor plan financing interest. Floor planning is a form of financing for large ticket items displayed on showroom floors. Auto dealers rejoice over preservation of 100 floor plan financing interest deduction by emily fiore and david blum on june 20 2018 posted in federal tax. The section 163 j limitation is applied after other interest disallowance deferral capitalization or other limitation provisions.

Interest expense limitation deductions for net interest expense are limited for businesses whose gross receipts exceed 25 million to the sum of 1 business interest income 2 30 percent of a business s adjusted taxable income and 3 floor plan financing interest for the tax year. 35 while the limitation applies to all business entity forms there are special rules for applying the. Much like a credit card a floor plan financing company extends a line of credit to a car dealer. The lesser of i gain realized on sale or disposition of property or ii deductions for depreciation amortization or depletion taken for such property during a tax year beginning after 2017 and similar adjustments for sales or dispositions of property held by a partnership or member of a consolidated group upon.

So how does floor plan financing work. As a practical matter nearly all auto dealers incur such floor plan financing interest. The 2017 tax reform act has significantly expanded accelerated depreciation methods under section 168 k bonus depreciation and section 179. Tax strategies bonus depreciation rules favor dealerships with floor plan financing interest.

For example automobile dealerships utilize floor plan financing to run their businesses. A business can deduct its business interest only to the extent of its business interest income plus 30 of business adjusted taxable income plus the business s floor plan financing income. The money borrowed from the bank collects interest and one has the choice to either make a minimum payment or pay off the balance in full when the bill is due.